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September 18, 2017

InsurTech's Business Model Diversity

A look at how digital technology is affecting the insurance industry value chain

Key Takeaway
The number of InsurTechs active in a category is not always in line with its relative attractiveness.

InsurTech’s promising future has been attracting a great deal of interest from founders, investors, and incumbents.

Surprisingly, this surge of interest has taken place in something of an analytical void. What has been missing is an unbiased, well-structured, and in-depth analysis of the InsurTech landscape.

Oliver Wyman and Policen Direckt’s global InsurTech Radar Report attempts to fill this gap by bringing onto the radar the previously unseen. The full report is available here.

The overall picture that emerges from our InsurTech Radar is, first of all, that different business model categories vary significantly in terms of overall level of economic attractiveness and degree of startup activity. While some see little startup activity, others already appear overcrowded. The number of InsurTechs active in a category is not always in line with its relative attractiveness. Secondly, even in the most attractive business model categories, it is not clear that InsurTechs will disrupt the industry and make the race. And lastly, a number of underdeveloped categories present attractive opportunities. To be successful in these areas will require innovators to get creative on “demand side” thinking creating models that fundamentally change how risk coverage is presented and sold to customers, models that are not merely digital updates of traditional or slightly altered insurance propositions. Such thinking— substantially different from the “supply side” models of the current, first wave of InsurTechs—is essential for uncovering latent customer demand for risk cover.

Our framework follows the insurance industry value chain from proposition to distribution and operations. Within these three segments, OW and PD have identified 19 distinct InsurTech business model categories.

The proposition segment is less than half the size of the others. It is also the most varied in terms of outlook. The InsurTech Radar shows that there is currently a major mismatch in this segment between the categories with the highest level of startup activity and those with the greatest overall potential. Nevertheless, the proposition segment includes some of the most attractive categories of any InsurTech segment, as they represent true innovation on how risk coverage is presented and sold to customers.

The InsurTech Radar shows the distribution segment to be much better matched in terms of the level of activity and the categories with the highest likelihood of success. As in the proposition segment, however, some of the most crowded categories are also likely to see a shakeout.

The operations segment is the most consistent of the three: Only one business model category here currently shows limited potential—the Balance Sheet / Financial Resource Management category. Most others are highly attractive. InsurTechs are likely to dominate the segment, albeit sharing honors in the underwriting category with reinsurers.

One key reason for some surprising gaps in the investment landscape is likely that much of the first wave of digital investment originated from legacy “supply side” thinking. InsurTech opportunities were seen in digitizing the value chain of existing insurance product-lines, or in attempts to apply e-commerce thinking to the insurance industry.

We expect a second wave of InsurTechs to emerge that are more industry-savvy and better prepared than their first-wave peers. These InsurTechs will create new forms of consumer and partner engagement, incorporating true “demand side” thinking.

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